Japan’s Immigration Imperative

Japan’s economy suffers from labor shortages. Given that, it should make more serious efforts to harness immigration as a source of economic revitalization.

Japan has always been averse to immigration due to the notions of cultural uniqueness and homogeneity that pervade Japanese thinking.

However, immigration has become a topic of lively debate over the past couple of decades, especially since Japan’s working age population began declining in 1995. And Japan’s foreign-born population has indeed increased from about 1% of the total population in 1990 to 2% today.

Nevertheless, Japan has the lowest foreign-born population, as a share of the total, of all the advanced OECD countries except for Mexico. Its immigration policies remain highly restrictive for lower skilled migration.

And while Japan is very welcoming, in policy terms, to highly skilled migration, the country has had difficulty attracting such migrants. Many of them choose Hong Kong or Singapore instead.

Japan ranked a mere 48th out of 60 countries for its “attractiveness to foreign-born highly skilled professionals” in a survey by Switzerland’s International Institute for Management Development.

No openness, no growth

With the continued decline in Japan’s working age population, the country is now beset with labor shortages which are adversely affecting economic growth, as the IMF has argued.

According to a study by Daiwa Institute of Research, reported by the same IMF study, there would be labor shortages in the 340,000-660,000 range during FY 2015 and FY 2016, which are cumulatively cutting GDP by some 2%.

According to a survey by the Manpower Group, 81% of Japanese firms are having difficulties in filling jobs in 2014. This is the highest of all the countries surveyed.

Japan’s labor shortages are most pronounced in construction, health care, home service and long-term care, as well as restaurants.

This presents a particular challenge for the reconstruction following the 2011 triple disaster (earthquake, tsunami and nuclear meltdown), and also with regard to preparing for the 2020 Olympic Games.

The corporate sector and some commentators have been arguing for greater openness to immigration. The government’s “Abenomics” program also includes a policy to increase the utilization of foreign workers.

The government has implemented some measures for highly skilled foreign professionals and for lengthening the stay of “internship” migrants from three to five years. But these responses remain very modest.

Not far enough

Looking ahead, there is little end in sight to Japan’s labor shortage problems. Under one scenario, the Japanese government is projecting the labor force to shrink from 66.3 million in 2010 to 56.8 million in 2030, with economic growth remaining near zero.

The Japanese government needs to abandon its ad hoc, reactive approach to immigration. It should develop a comprehensive immigration policy as an integral part of the country’s medium term growth strategy.

Taking this step is all the more important as immigration is an important complement to other policy issues.

This applies nowhere more than on Abe’s signature policy issue — “womenomics.”

Enhancing women’s participation in the economy is constrained by restrictions on immigration of home service and care workers. That makes it difficult for Japanese women to combine work and family life.

There is a clear pay-off for implementing this strategy. The OECD has indeed estimated that if the female labor participation rate were to converge to that of men by 2030, this could lift GDP by almost 20%.

Entrepreneurship and innovation

Entrepreneurship and innovation are two other areas where Japanese performance has been relatively weak. According to the Global Entrepreneurship Monitor, Japan’s entrepreneurial activity has been very low since GEM started collecting data in 1999.

In 2014, Japan ranked second lowest among the more than 100 countries surveyed (coming just before Surinam).

Many studies have shown that well-managed immigration can be a powerful source of entrepreneurship and innovation. Where would Silicon Valley be without its immigrants?

Prime Minister Shinzo Abe’s ambitious target of doubling the stock of foreign direct investment into Japan from the woefully low 4% of GDP could also be facilitated by greater openness to immigration.

Many immigrants arrive with a stock of assets for investment, and can also be useful workers for international companies requiring bilingual staff.

And at a time when Japan is seeking to court more diplomatic friends in the Asian region, in the context of geopolitical rivalries, one important friendship gesture would be greater openness to immigration.

Integration, not just immigration

Given its concern about the cultural suitability of potential migrants, Japan should also make greater efforts to facilitate the integration of its international students into the economy following their graduation.

After a few years study, they are usually at ease with the Japanese language and cultural customs. But less than 10% of Japan’s international students currently seek working visas.

Targeting international students as potential immigrants might also improve the attractiveness of Japan as an international education destination.

Is it realistic to think of Japan opening up to immigration as a potential source of economic revitalization?

After all, Prime Minister Shinzo Abe and many parts of his government remain steadfastly against having an immigration policy, citing the social problems experienced in Europe with large scale immigration.

Against that, some government ministers like Shigeru Ishiba and Taro Kono have recently spoken out in favor of increased immigration. And a recent Asahi Shimbun survey shows that Japanese public opinion may be changing.

In this new poll, 51% of Japanese respondents said they support Japan accepting foreigners who want to settle, while 34% were opposed to expanding immigration.

Urgent choices

For Japan, revitalizing its economy is imperative. Already, Japan’s potential GDP growth rate has fallen from over 3% in the early 1990s to only 0.5% today, according to the Bank of Japan.

The population is slated to fall from its current 127 million to 87 million in 2060, when 40% of the population would be 65 or older.

Without more serious efforts, there is a risk of Japan simply withering away under the weight of poor demographics and the burden of massive public debt and increasing its vulnerability to the growing fragility of its regional security environment.

A well-designed immigration strategy could make an important contribution to Japan’s future.